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Monday, September 22, 2014

Singapore Post Ltd - Groundwork firmly in place

What HappenedSingPost hosted a site tour to view its end-to-end suite of ecommerce logistics services. These range from front-end solutions such as website design to back-end services including warehousing and last-mile delivery. What We ThinkWith a full suite of ecommerce logistics solutions, we believe SingPost has laid the groundwork for regional expansion. While most third-party logistics (3PL) providers mainly focus on warehousing and delivery, SingPost’s added services allow it to capture a wider audience, from international brands looking to set up a standalone online retail presence (monobrand channel) to SMEs that want to list their products on an online marketplace (multibrand channel). SingPost views the monobrand segment as a key growth area, given that consumers trust brands’ official websites more than online marketplaces, especially in less ecommerce-ready markets like Indonesia. Moreover, with the exception of website design, the infrastructure and systems needed to run an ecommerce operation for each brand are the same, thus making it highly scalable. As logistics is a volume game, we think that SingPost needs to ramp up order flow to capture efficiency gains and keep its pricing competitive. Order flow is limited by customer acquisitions, which have shown promising signs (doubled from 300 to 600 ecommerce customers as at end-FY14) but still need to expand more rapidly. A potential tie-up with Alibaba could bring in bigger volumes, not only through Alibaba’s expansion into ASEAN, but also a global ecommerce logistics platform that will be made available to third-party users. What You Should DoSingPost’s share price has traded sideways since its run-up in Jun when it announced that Alibaba was taking a stake in SingPost. Even the news of a postage rate hike, which we estimate would lead to 6-7% EPS accretion, barely moved its share price. We believe the next re-rating hinges on the potential JV with Alibaba to set up an international ecommerce logistics platform. M&A opportunities in ecommerce logistics also remain a key catalyst for the stock.